What To Look For In An Automated Investing App

When you’re choosing an automated investing app, there are four areas you should look into:

• What the app actually automates

• What it costs you at your balance

• Which account types they support

• Whether the extra features the app has apply to your situation at all
  
  

Many apps can promise to invest your money for you, and describe it with similar words, which makes them difficult to tell apart. The main question you’re asking is a more personal one: What would this be like for me, with my income, balance, investing activity, and what accounts would those be?

To get started, there’s 8 questions worth asking, with a note on which ones could change your decision and which ones won’t. If you’re still deciding whether or not to work with a robo-advisor, we got a quick guide on what a robo-advisor is. 

What to compare across the best automated investing apps

Different investment apps will work better for others, and what can help you decide is a set of questions you can put to any platform. Here they are, in no particular order:

1. What does it automate, getting money in or managing it once it’s there?

2. What’s the minimum to open, and the minimum to actually be invested?

3. Is pricing a flat monthly subscription or a percentage of your balance or something else?

4. Which account types are supported, and will that cover you in five years?

5. Does it rebalance automatically, and how much of the account does that cover?

6. Does it offer tax-loss harvesting, and does that apply to you at all?

7. How much can you customize the portfolio, and what do you give up for it?

8. Is human advisor access available, and at what balance or subscription?

Here’s a bonus question before you fund anything: Is the firm registered, and where can you check that for yourself?

1. What does the app actually automate?

One of the biggest questions are what the app actually automates. Nearly every app manages your portfolio once your money is in the account, and many also automate how the money gets there. What varies is whether that deposit automation flexes when your income does.

One of those is Acorns. You can automate how money gets in through recurring investments, Round-Ups®, and more. Many customers tap into both, with the option to always adjust the amount or pause investments when needed.

None of this changes market risk. Investing on any schedule doesn’t ensure a profit or protect against loss. Platforms can differ on what they automate, so it’s worth finding out before you commit. You can see which platforms automate which parts of investing in our companion guide.

2. The minimum to open and minimum to invest are different numbers

On most platforms, the minimum to open an account and the minimum to actually be invested can be two different numbers. An app can advertise no account minimum and still hold your first deposit as cash until it reaches a separate threshold, so the second number is the one that decides when your money can start working for you.

The gap exists for practical reasons. A platform buying whole shares needs enough cash to buy one. Even for platforms that offer fractional shares, where you can own a part of a share, they often gather small deposits together before placing an order. None of that is meant to be hidden.

To understand the minimums, ask these questions:

• What’s the minimum to open the account?

• What’s the minimum before my money is invested rather than sitting in cash?

• Does each account type have its own minimum, and do recurring deposits have a separate threshold?

A low invested minimum can be more attractive than a low opening minimum because your money can get to work faster instead of waiting to reach a threshold. 

3. Flat monthly subscription or percentage of your balance?

If you're starting small, a percentage-based fee (typically around 0.25% annually) can cost less than a flat monthly subscription. But that fee in dollars grows if your balance grows. Once your balance gets past a certain amount, a flat subscription can become the cheaper option.

A flat subscription and a percentage fee are just two different ways to charge, each with a breakeven point. Below that point, the percentage fee is cheaper, and above it, the flat fee is cheaper. For more, see how a flat subscription compares by balance and flat subscriptions vs. percentage-based fees.

4. Which account types will you need in the next few years?

Account types deserve more attention than most comparisons give them, because opening the right account now is a great deal easier than moving one later. There are four worth checking on:

• A taxable brokerage account

• A Traditional or Roth IRA

• A SEP IRA if you have self-employment income

• A UGMA/UTMA custodial account if you’re investing for a kid

Each one works a bit differently. A taxable brokerage account has no contribution limit or withdrawal restrictions, making it a flexible option for any goals you want to achieve before and during retirement. A Traditional or Roth IRA is where you invest for retirement, with the tax break coming either up front or when you withdraw during retirement. A SEP IRA works like an IRA but allows much larger contributions if you're self-employed. A UGMA/UTMA custodial account holds investments for a kid until the age of transfer, when the account becomes theirs.

It's also worth thinking ahead: The account that fits today might not fit in a year or two. If you've started freelancing on the side, a SEP IRA might be worth opening sooner rather than later. If a kid is on the horizon, a custodial account is worth considering before you need it. Consolidating later is always possible, but transfers between brokerages can take weeks, and some platforms charge to move investments out.

5. Automatic rebalancing is close to table stakes

Automatic rebalancing is a feature available in almost all apps, so it's one less thing to consider when comparing platforms.

Here's how it works: Your portfolio is made up of a mix of assets, like stocks and bonds, matched to how much risk you're comfortable with. As markets move, that mix can drift. Say your portfolio starts at 70% stocks and 30% bonds. After a strong year for stocks, you might end up closer to 80% stocks, and carry more risk than you signed up for. Automatic rebalancing brings your portfolio back to its target allocation without you having to step in.

Since automatic rebalancing is available in almost all apps, a couple questions worth asking are:

• Does the app rebalance the whole account or only part of it, especially if you've added self-picked investments?

• Are dividends and new deposits reinvested along the way?

It's also worth knowing that in a taxable account, rebalancing can create a taxable event, but in an IRA, it generally won't. Rebalancing helps keep your risk where you want it, though like any strategy it doesn’t ensure a profit or protect against loss. To learn more, see how automatic rebalancing actually works.

6. Do you need tax-loss harvesting?

Tax-loss harvesting means selling an investment that's down to lock in a loss, then using that loss to offset capital gains at tax time, while buying something similar so you stay invested. This helps lower your tax bill in a year where you have capital gains, but it only applies to taxable accounts. An IRA has no annual capital gains to offset, so the strategy doesn't apply there.

So if most of your investing happens in a retirement account, or you're starting with a smaller balance, this is a feature you shouldn’t need to worry about. If you hold a taxable account with a balance of $25,000 or more, it's worth considering.

7. How much control do you want over the portfolio?

Portfolio customization can seem more like a trade-off than an upgrade. The goal of these apps is to automate your investments, which means the app takes on some of the control over managing your portfolio. More customization means giving some of that control back to yourself.

A question worth asking is: how much do you want to pick your own stocks?

There's no wrong answer here. What you want to automate versus control can determine which investment app works better for you.

8. When is human advisor access worth paying for?

Human advisor access is worth paying for when your situation is complicated in ways an algorithm can't handle, such as a complex tax situation, equity compensation, estate planning, or a major life transition like a divorce or an inheritance.

A steep market drop belongs on this list too, but for a different reason. What an advisor adds in a downturn is often less about the portfolio and more about talking through a decision you might otherwise regret, and an automated tool may not be built for that conversation. 

Some platforms include advisor access above a certain balance or on a higher subscription tier, and some charge for it separately by the session.

How to check that an investing app is legitimate

Before you open an account anywhere, check the firm through the SEC's Investment Adviser Public Disclosure database or FINRA BrokerCheck. Both are free, take under a minute, and will tell you whether the firm is registered and whether it has a disciplinary history.

 Here’s what to look for:

• That the firm is registered

• What its Form ADV says about how it makes money

• Whether there are any disciplinary disclosures

Plenty of apps also use one company as a registered investment adviser and a separate one as the broker-dealer holding your investments. That structure is normal and not a red flag on its own. 

Being protected by SIPC and being FDIC-insured cover two different risks:

• SIPC protects the securities and cash in a brokerage account if the brokerage firm fails, up to $500,000 per customer including a $250,000 limit on cash. It doesn’t protect you against your investments losing value.

• FDIC insurance covers deposits at an FDIC insured bank if the bank fails, generally up to $250,000 per depositor, per insured bank, per ownership category
  
  

Neither one is a promise that you’ll make money, or covers a drop in market value. If an app suggests otherwise, that’s a good reason to slow down and read the details before you fund anything.

When to consider Acorns as your investment app

If your answers point toward automation on both investing and getting money in, a flat monthly subscription, and a portfolio built and managed by someone else, Acorns may be right for you. There’s no account minimum to open an Acorns Invest account, and you can start investing with as little as $5.

Start investing with Acorns.

Investing always involves risk, including the possible loss of principal, and no amount of automation changes that. What automation can do is make it easier to keep going. Over a long stretch of time, that could mean most of the work.

Frequently asked questions

What should you look for in an automated investing app?

Look at what the app automates, how much it costs depending on your balance, and which account types it supports. From there, consider other features that you might want, such as rebalancing, tax-loss harvesting, how much you can customize the portfolio, and whether a human advisor is available.

At what balance does a flat monthly subscription cost less than a percentage fee?

A $4 monthly subscription, or $48 a year, costs less than a 0.25% annual management fee once your balance passes $19,200. At $8 a month the crossover is $38,400, and at $12 a month it’s $57,600. Below those balances, percentage pricing is the cheaper structure. Above that, the flat price is, and the difference grows as your balance does.

How can you tell if an investing app is legitimate?

Search the firm in the SEC’s Investment Adviser Public Disclosure database or FINRA BrokerCheck before you deposit anything. Both are free and can take under a minute. They’ll show you whether the firm is registered, what its Form ADV discloses, and whether it has a disciplinary history.

Is tax-loss harvesting worth having in an automated investing app?

It’s only worth having if you invest through a taxable account. Tax-loss harvesting works by using investment losses to offset capital gains, and an IRA has no annual capital gains to offset, so the feature does nothing there. If you do hold a taxable account, the benefit grows with the size of your gains and your tax rate, so it matters more at larger balances than smaller ones.

What account types should an automated investing app offer?

Common account types are a taxable brokerage account and an IRA. However, the right account type also depends on where you see yourself in a few years. Add a SEP IRA if you have self-employment income, or a UGMA/UTMA custodial account if you’re investing for a kid.